François Rochon: Being boring pays dividends

Last year, I wrote a column about “boring” companies making decent profits. I then talked about four U.S.-based companies: Bed Bath & Beyond, Fastenal, Copart and Lumber Liquidators. Their stocks’ performance have been far from boring: Since May 2011, they are up 43 per cent on average (compared with 8 per cent for the S&P 500).

I also wrote a few words about BMTC Group (TSX: GBT.A), a Montreal-based furniture retailer (Brault & Martineau). That stock has not fared as well in the past two years, but it’s a very good (and, yes, boring) company.

Some other Canadian companies, also based in Montreal, would fit that mould. One that immediately comes to mind is Dollarama. Now that is a boring company! What is not boring is how well this company is managed by Larry Rossy and how fast it has grown. Founded in 1992, Dollarama (TSX: DOL) is now the leading dollar-store operator in Canada with 735 locations across the country.

I’m rarely interested in new public offerings (the price is seldom right). But I did with Dollarama and the stock is up by more than 200 per cent in three years. The fundamentals have been spectacular: Since 2009, earnings per share (EPS) have increased from $1.37 to $2.88 estimated for this year (that is a 28 per cent compounded annual growth rate).

Another boring Montreal-based company is MTY Food Group. For more than 25 years, MTY (TSX: MTY) has positioned itself as a leading franchisor by developing innovative quick-service concepts, pursuing acquisitions and forming strategic alliances. Today, MTY has 28 brands and 2,280 restaurants — mostly in partnership with franchisees. Its multi-banner portfolio includes names like Tiki-Ming, Thai Express, Sushi Shop, Tacotime and Jugo Juice. Nothing glamorous or trendy. The restaurants are mostly located in malls, so they don’t require large investments or regular renovations. It’s a group of great businesses managed by a brilliant CEO, Stanley Ma.

Since I first bought shares of MTY in 2007, EPS has increased from $0.51 to $1.30 (estimate for this year). Growing at a 21-per-cent annual rate in the restaurant business is quite an accomplishment. The stock has also done well, increasing from $9 to $19.60 during the period. Ma is a very creative and resourceful businessman. That is why I believe the company can continue to grow at a superior rate in the future.

Another boring local company is Stella Jones. The company produces and markets industrial treated wood products in Canada and the United States. Its products include railway ties and timbers, and wood poles used by electrical utility and telecommunications companies. The company is not well known, but has had a spectacular performance thanks to important acquisitions over the years. Its EPS growth is also far from boring: In the last five years, it has grown at a 17 per cent annualized rate. The company earns close to 20 per cent on equity, which is impressive in the wood-products industry. The stock (TSX: SJ) is not very expensive: it trades at around 13 times this year’s estimated earnings.

Finally, one company that has been in the news lately is Astral Media (TSX: ACM). The CRTC rejected the proposal by BCE Inc. (TSX: BCE) to acquire Astral at $50 a share. The stock lost $11 on the news and could be an attractive investment. I would not speculate on what will happen next (I like to stay away from anything related to politics), but I do believe the people managing Astral are honest and able businessmen and women. And I have always admired its CEO, Ian Greenberg. Owning TV and radio stations in addition to outdoor advertising is not a very exciting venture anymore. While the growth rate of the industry is modest, Astral has built an impressive group of businesses all over Canada and its stock is certainly worth more than $40 in my mind. And the dividend of 2.5 per cent is higher than the long-term government bond rate. So, I think it could be included in this group of boring — but highly profitable — Montreal companies.

François Rochon is the head of wealth-management firm Giverny Capital, which he founded in 1998.

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